Trade-in tax calculation

When you get a lower than expected trade-in appraisal at the dealership, it can be tempting to stop negotiations.  You may believe you could get a better offer somewhere else.  While this may be true, you must remember to factor in tax savings to perform a true comparison. 

Most states will credit the value of your trade-in when determining the purchase price for sales tax calculations.  This can result in a nice discount off the total amount you’ll pay.  If you were to sell your car independently, you would not be able to take advantage of this savings.

Remember this trade-in formula:

      trade in value times 6%* = tax savings

 *Sales tax varies from state to state, so use your own state's tax %, but 6% is the norm.

For Example

If you were to buy a $25,000 car and had a trade-in worth $15,000, your sales tax would be on $10,000 instead of the full $25,000.  If your tax rate is 6%, that would result in a savings of $900. If your appraisal is up to $900 less than what you could get independently, you’re still better off selling to the dealer. And of course it's less of a hassle as well.

      $15,000 X .06 = $900

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